 |
 |
|
China's Exchange Control
System
Introduction
Since the start of reform and opening China's exchange control system
has undergone in the region of ten years of reform with significant
achievements. Following the adoption of a series of reform measures,
especially the two major reforms in 1994 and 1996,great changes
have taken place in China's exchange control system:
from centralised control and unified receipts and payments of foreign
exchange before 1979 and from dual exchange rates and foreign exchange
retention in the early days of reform to today's single exchange
rate and convertibility of current accounts in Renminbi;
from previous planned distribution of foreign exchange sources in
combination with marker demand to distribution mainly subject to
market demand;
the foreign exchange market has developed from nothing and separated
swap centres to the current nationwide unified interbank trading
market.
China's exchange control system with its brand new features is recognised
and appreciated by the international community. Since official operation
of this new system, China's foreign trade and utilisation of foreign
capital has developed along healthy lines; her balance of payment
condition has improved gradually,her foreign exchange reserves increase
year after year and the Renminbi exchange rate remains broadly stable.All
this has laid down a solid foundation for in-depth reform of the
exchange control system and for the ultimate realisation of full
convertibility of the Renminbi.
The system of a managed floating Renminbi rate
The Renminbi exchange rate system is the base for stable operation
of China's exchange control system. The Regulations on Exchange
Control of the People's Republic of China promulgated with the State
Council's approval in January 1996 point out:
The exchange rate for Renminbi is a single, managed floating exchange
rate based on market demand and supply.
The establishment of a nationwide interbank market
Beginning in 1985 many foreign exchange swap centres came into being
across the country, characterised by strong administration, regional
segmentation, varied prices and no interregional flow of funds.
Moreover, the main trading bodies in the market comprised enterprises
rather than banks which could only act as their intermediaries,
and this distorted the relation between supply and demand and led
to violent fluctuations of the Renminbi rate.
Foreign exchange system reform began in 1994 with the establishment
of the China Region Exchange Trading Centre in Shanghai which is
linked to 34 cities by a computer network and extends to the nearby
regions. After segmentation by administration areas was discarded,
a nationwide unified interbank trading market was established. The
Centre has adopted a membership system with 384 unit members-' at
present comprising the head offices of Chinese-funded banks and
their authorised branches, foreign-funded banks and authorised non-bank
financial institutions, which represent tile main trading body on
the market. Following foreign- funded enterprises' participation
in the banking system for tile settlement and sales of foreign exchange,
foreign-funded banks are also permitted to engage in such business,
so that the interbank trading market is further stimulated.
At present, there are three foreign currencies tradeable with the
Remninbi at the Center: US dollars,Japanese yen and Hong Kong dollars.
The daily weighted average is published by the People's Bank of
China as the middle rate for the ensuing business day; each bank
may quote prices within the permitted floating limits of 0.15 per
cent for US dollars and 1 per cent for Japanese yen and Hong Kong
dollars. For other currencies, cross rates are fixed on the basis
of the international market level and a floating margin as specified
by the People's Bank of China. Thus the establishment and normal
operation of the nationwide interbank trading market has geared
the Renminbi rare to market supply and demand.
The single managed floating exchange rate system
Before 1994 official and swap market exchange rates co-existed under
a dual exchange rate system which together with a widening exchange
margin stimulated speculations and frequent fluctuations. This in
turn impinged on the stability, of financial order and the smooth
conduct of foreign trade. In January 1994 the Chinese government
took effective measures by realising the unification of official
and swap market rates. The single exchange rate system was hailed
as a strategic decision by the IMF, and has created favourable conditions
for China to participate in international competition with others
on a fair and equal footing.In order to ensure the healthy development
of the national economy and maintain basic stability of the Renminbi
rate, the People's Bank of China exercises necessary control and
intervenes in the light of state macroeconomic control targets.
Convertibility of current accounts and transfers
Now that China has reached the target of convertibility of Renminbi
current accounts, Renminbi payments for foreign trade and non-trade
transactions as well as transfers of capital gains within China
may be converted into foreign currencies for remittance or transfer
abroad. Contral over trade payments
Normal trade
Payments for imports by domestic organisations may be effected from
their foreign exchange accounts or with foreign exchange purchased
at banks designated by the State Administration of Exchange Control
(SAEC) as follows:
For goods imported under a documentary credit/payment guarantee,
in case a purchase of foreign exchange is needed to open a letter
of credit, the import contract, the Verification Certificate for
Foreign Exchange Payment for Imports and the application to open
an L/C shall be presented to the designated bank and when a purchase
is needed for payment, valid commercial documents shall be also
presented if payment is made by L/C. For verification of imports,
the original Customs declaration form for import shall be presented.
For goods imported under documentary collection, the import contract,
Verification Certificate for Foreign Exchange Payment for Imports,
payment advice for imports and valid commercial documents under
collection shall be presented. The verification of imports shall
require the presentation of the original Customs declaration form
for imports.
For goods imported by remittance payment, the import contract, the
Verification Certificate for Foreign Exchange Payment for Import,
the invoice, the original Customs declaration form for imports and
the original transport documents shall be presented; and in case
of any discrepancy between the name of the consignee on the bill
of lading and the business unit on the Customs declaration form,and
the name of the buyer on the import contract,an agency agreement
between both parties shall be presented.
Among goods imported under these three categories,for those subject
to import quota or special goods under import control, the import
licence granted by the relevant government agency or the import
certificate shall be presented; for those under the automatic registration
system, a completed form of registration shall be presented as well.
Special trade
1. Advance payment for imports below 15 per cent of the contract
value or exceeding 15 per cent but less than the equivalent of US$100,000
may be effected from the importer's foreign exchange account or
with foreign currency purchased at the bank subject to presentation
of the import contract and the Verification Certificate for Foreign
Exchange Payment for Imports.
2. Payments for supplies consumed by transportation tools at overseas
harbours.
3. Expenses on repair and maintenance abroad of aircrafts, ships
and other transportation tools.
payments under 2 and 3 above may be effected from the customer's
foreign exchange account or with foreign currency purchased at the
bank subject to presentation of a list of payments for later verification.
4 Return of goods: payment under an export contract may be refunded
from the exporter's foreign exchange account or with foreign currency
purchased at the bank subject to presentation of a completed application
form for refund of foreign exchange, and exchange memo or credit
advice, claim agreement, insurance adjustment certificate and the
verification certificate for the reduction of export proceeds.
Control over non-trade payments
Services Income in Renminbi from passenger services and transportation
by offices of foreign airlines in China may be converted into foreign
currencies at the bank subject to presentation of the notice of
sales of foreign exchange issued by the SAEC against a list of tickets
sold and the relevant statement; for freight under import and export
contracts, the units involved may effect payment against the relevant
documents from their foreign exchange account or with foreign exchange
purchased at the bank; for expenses payable by domestic units for
international transportation,equipment maintenance and port use
fees, they may be paid from their foreign exchange account or with
foreign currency purchased at the bank subject to presentation of
a detailed list and relevant documents for later verification.
Insurance
Insurance premiums payable by non-insurance enterprises under import
and export contracts may be paid from their exchange accounts or
with foreign currency purchased at the bank against the relevant
documents.
In case an insurance company needs to cede part of its coverage
in foreign currency on import and export transactions and non-resident
insurance risk or incurs indemnity to the insured, such payments
may be effected from a foreign exchange account at the bank. Other
categories of cover and domestic resident insurance should be written
in terms of Renminbi, and, in case of ceding part to foreign agencies
or indemnifying the insured, payment may be effected with foreign
currency purchased at the bank.
Travel abroad
Expenses relating to travel abroad on public business may, be paid
from the foreign exchange account of the department concerned or
with foreign currency purchased at the bank against the approval
of the authorised department and the visaed passport. For residents
going abroad for personal affairs, foreign currency may be purchased
against the relevant documents listed below.
Telecom and post services
Expenses payable by telecom and post departments for international
telecom and post services may be paid from their exchange accounts
or with foreign currency purchased at the bank subject to presentation
of a detailed list of the users for later verification.
Construction, installation and contractual labour services
Companies authorised by MOFTEC may pay all expenses in connection
with their overseas project engineering and labour services, technical
co-operation, survices, design, consultancy and bid invitation from
foreign exchange accounts opened at the bank with the approval of
the SAEC.
Official and governmental contacts
Renminbi income such as visa fees received by foreign embassies
and consulates in China may be converted into foreign currencies
at the local Bank of China against an official letter from them
and the receipt for each item or a detailed statement for each,
and the foreign currency so purchased may be either deposited in
China or remitted abroad. Start-up expenses for opening representative
or business offices abroad by Chinese institutions and their annual
budget cost may be paid from their foreign exchange account or with
foreign exchange purchased at the bank against approval of their
establishment by the competent authorities and the budget report.
Patent use fees and royalty fees
Payments for intangible properties imported such as patent rights,
copyrights, trademarks and computer software may be paid from the
user's foreign exchange account or with foreign currency purchased
at the bank.
Other payments
Other foreign exchange payments such as those for computer information,
consultancy, education, advertisements, films, music and video may
be effected with reference to the corresponding sections of the
Regulations on the Sale and Purchase of and Payment in Foreign Exchange.
Verification of export proceeds and import payments
In order to consummate the settlement and sales of foreign exchange
under trade contracts, to standardise the banking procedures, to
prevent speculative and other illegal activities, and to avoid confusion
between foreign exchange under capital account and that under current
account, China implements a verification system for export proceeds
and import payments.
Verification of export proceeds by the local SAEC
Under general conditions, the export units should, after declaration
of the export goods, submit a copy of the declaration to the SAEC
and prepare the necessary documents; after receipt of export proceeds
from abroad, they should go to the SAEC for verification.Verification
procedures must be completed within 30 business days after receipt
of export proceeds at the local SAEC in cases of payable trade,
and within 50 business days after declaration in cases of non-payable
trade. Foreign-funded enterprises may, after declaration, go through
the verification procedures at regular intervals generally once
a month, or later for special reasons, but at the latest within
the quarter.
The verification system for export proceeds and import payments
is an important means for retrospective supervision aimed at ensuring
safe receipt of foreign exchange and preventing foreign exchange
from draining away through illegal channels.
Verification of import payments by the bank
Domestic institutions engaged in import business shall purchase
the foreign exchange needed or use their foreign exchange accounts
at the bank to make advance payment, payment for imported goods,
outstanding items, information and materials, for all of which they
must complete the verification procedures with the SAEC. When an
import unit purchases the necessary amount of foreign exchange,
the verification should be completed at the same time if it has
a Customs declaration form, without which the same should be done
within 30 business days. Advance payments may be verified item by
item after arrival of the imported goods. If, at the time of verification,
the bank has doubts about the import declaration form and one payment
for imports exceeds US$500,000, the bank should check with the Customs
office involved and only when it is found all right can the verification
procedures be completed.
The verification system for import payments aims mainly to ensure
conformity between payment and import, and is carried out by the
bank so that foreign exchange can be prevented from draining away
through illegal channels, and evasion of exchange control and unlawful
procurement of foreign exchange may be cracked down on.
|
|
|
